Realitista

The Myth of Class Mobility in the USA

When Americans express indifference about the problem of unequal incomes, it’s usually because they see the United States as a land of boundless opportunity. Sure, you’ll hear it said, our country has pretty big income disparities compared with Western Europe. And sure, those disparities have been widening in recent decades. But stark economic inequality is the price we pay for living in a dynamic economy with avenues to advancement that the class-bound Old World can only dream about. We may have less equality of economic outcomes, but we have a lot more equality of economic opportunity.

The problem is, this isn’t true. Most of Western Europe today is both more equal in incomes and more economically mobile than the United States. And it isn’t just Western Europe. Countries as varied as Japan, New Zealand, Singapore, and Pakistan all have higher degrees of income mobility than we do. A nation that prides itself on its lack of class rigidity has, in short, become significantly more economically rigid than many other developed countries. How did our perception of ourselves end up so far out of sync with reality?

Find out how here

How's the GM bailout looking today?

GM’s stock price has sunk by a third since its IPO. Why is corporate turnaround so difficult and rare? The answer is often culture—the hardest thing of all to change.

GM sold 478 million common shares at $33 each, as well as a sizable chunk of preferred stock, raising $20.1 billion. While the IPO itself didn’t fully recover the federal government’s post-crash investment in GM (some $50 billion), a complete payoff seemed possible if the stock price rose enough, allowing the government to sell off its remaining stake at a better price. More important, said sober analysts, the stripped-down cost structure, looser union contracts, and management shake-up that preceded the IPO would allow GM to finally shed its decades-old legacy of divisive labor battles and mediocre, gas-­guzzling cars. (As I reported in these pages in 2010, I, too, saw inklings of hope.)

In November 2011, roughly a year later, Treasury revised its estimate of the government’s likely loss upward from $14.3 billion to $23.6 billion. As of this writing, GM’s stock was hovering around $20 a share. The company was beset by reports that the batteries in its splashy new hybrid-electric car had an unfortunate tendency to catch fire. Meanwhile, sales of the Chevy Cruze, which was supposed to be the Corolla-killer, were slipping after a strong initial showing.

This despite the fact that the company’s major Japanese competitors had been crippled by a tsunami and a nuclear meltdown. Business journalists often joke that some struggling firm could be saved only by “an act of God,” but in the case of GM’s stock price, even that hasn’t been enough.

Which has to raise the question: Was the company really saved? Did it finally have its “Come to Jesus” moment? Or was this just one more temporary detour in the company’s erratic amble toward perdition?

Read the rest here

What Does Wall Street Do for You? - Perhaps the best way to understand Wall Street is to imagine life without it.

THE POOR WOULD STAY POOR

In the U.S., we use credit cards, mortgages, credit scores, securitized loans and other Wall Street innovations to do the miraculous: to persuade some institution with a lot of money to hand it over to someone who doesn’t have that much. This happens even though we have laws that allow borrowers to declare they can’t pay the loans back. Sure, we have too much household debt, but that’s a better problem than what most nations face. Most people in the world don’t have access to a modern financial system, and there is almost no way, other than through greedy loan sharks, for the surplus cash of the very rich to get in the hands of the poor.

HOW DOES WALL STREET DO THIS?

Wall Street’s core function is to perform a sort of financial alchemy, an incredibly complicated method of giving a lot of people what they want. Investors with extra cash want constant access to their money with little chance of losing any. Borrowers want to hold on to the loans for a long time and, sometimes, take big risks. Stocks, bonds, savings accounts and money-market funds are all ways of making twitchy, conservative lenders and dreamy, semi-reckless borrowers happy at the same time about the same pile of dough. Meanwhile, consult the chart for a breakdown of how Wall Street makes money to pay for these transactions.

IS IT STILL O.K. TO HATE WALL STREET?

Absolutely. Wall Street firms enforce the cold rules of capitalism: hostile takeovers, foreclosures, fee increases, defaults. But those rules clearly do not apply to the largest banks themselves. A variety of economists (including, notably, several at N.Y.U.’s Stern School of Business) have mounted strong evidence that, over the past decade or so, a significant part of Wall Street’s business has shifted from serving the financial needs of the nation to profiting from “regulatory arbitrage” — making money by playing with the rules of the game. Reporting by my colleagues at NPR’s “Planet Money” shows that a dollar spent lobbying in Washington can have a return on investment of thousands of dollars.

"Free Market" Doesn't Mean "Pro-Business"

Just a simple mistake that allows the mega corporations to drive their smaller competitors out of business.

I propose that we dispense with the rhetorical conflation of “pro-business” and “free market.” Or at the very least we should understand the difference between the two. One of the key features of a free market is that it is a system of profit and loss. The “free” part of “free market” means free entry and exit. In a market economy, you are free to earn and enjoy enormous profits as your just reward for taking the world as you found it and producing some kind of new good or service that makes the world a better place. In economists’ parlance, you earn profits by creating wealth. At the same time, you are free to enjoy enormous losses as your just punishment for taking the world as you found it and producing something that actually makes it a worse place. In other words, you earn losses when you destroy wealth and waste resources.

Minimum Wage in U.S. Fails to Beat Inflation

“Hardship is increasing for lower-income levels, and the minimum wage reflects those at the lower end of the payroll spectrum,” said Ellen Zentner, a senior economist at Nomura Securities International Inc. in New York. “With those meager wages in place, it makes it hard to imagine families doing with even less.” A jobless rate that has exceeded 8 percent since February 2009, the longest stretch of such levels of unemployment since monthly records began in 1948, is one reason why workers have little leeway to press for higher wages. Adding in part-time workers who would prefer full-time jobs, and discouraged workers who would take a job if one were available, pushes the rate up to 15.6 percent as of November.

The Euro Is Doomed: How the Collapse of Italy and Greece Will Destroy the Currency - Slate Magazine

Symmetrical reflation is the best option for restoring growth and competitiveness on the eurozone’s periphery while undertaking necessary austerity measures and structural reforms.

This implies significant easing of monetary policy by the European Central Bank; provision of unlimited lender-of-last-resort support to illiquid but potentially solvent economies; a sharp depreciation of the euro, which would turn current-account deficits into surpluses; and fiscal stimulus in the core if the periphery is forced into austerity. Unfortunately, Germany and the ECB oppose this option, owing to the prospect of a temporary dose of modestly higher inflation in the core relative to the periphery.

The bitter medicine that Germany and the ECB want to impose on the periphery—the second option—is recessionary deflation: fiscal austerity, structural reforms to boost productivity growth and reduce unit labor costs, and real depreciation via price adjustment, as opposed to nominal exchange-rate adjustment. The problems with this option are many. Fiscal austerity, while necessary, means a deeper recession in the short term. Even structural reform reduces output in the short run, because it requires firing workers, shutting down money-losing firms, and gradually reallocating labor and capital to emerging new industries.

So, to prevent a spiral of ever-deepening recession, the periphery needs real depreciation to improve its external deficit. But even if prices and wages were to fall by 30 percent over the next few years (which would most likely be socially and politically unsustainable), the real value of debt would increase sharply, worsening the insolvency of governments and private debtors.

American Class System - We Are Not All Created Equal

There are some truths so hard to face, so ugly and so at odds with how we imagine the world should be, that nobody can accept them. Here’s one: It is obvious that a class system has arrived in America — a recent study of the thirty-four countries in the Organization for Economic Cooperation and Development found that only Italy and Great Britain have less social mobility. But nobody wants to admit: If your daddy was rich, you’re gonna stay rich, and if your daddy was poor, you’re gonna stay poor. Every instinct in the American gut, every institution, every national symbol, runs on the idea that anybody can make it; the only limits are your own limits. Which is an amazing idea, a gift to the world — just no longer true. Culturally, and in their daily lives, Americans continue to glide through a ghostly land of opportunity they can’t bear to tell themselves isn’t real. It’s the most dangerous lie the country tells itself.

The full report that the article references is available here

World power swings back to America - Telegraph

I’ve given a lot of time to the other side of this debate, so it’s interesting to see the side that imagines the USA will be the dominant superpower in the coming century. For me the only question is if they keep their reserve currency status. Hydrofracking and unemployment, not exactly the way in which we’d all want this to happen, but interesting to think about nonetheless.

The American phoenix is slowly rising again. Within five years or so, the US will be well on its way to self-sufficiency in fuel and energy. Manufacturing will have closed the labour gap with China in a clutch of key industries. The current account might even be in surplus.

What If We Paid Off The Debt? The Secret Government Report

The report is called “Life After Debt”. It was written in the year 2000, when the U.S. was running a budget surplus, taking in more than it was spending every year. Economists were projecting that the entire national debt could be paid off by 2012.

This was seen in many ways as good thing. But it also posed risks. If the U.S. paid off its debt there would be no more U.S. Treasury bonds in the world. “It was a huge issue … for not just the U.S. economy, but the global economy,” says Diane Lim Rogers, an economist in the Clinton administration. The U.S. borrows money by selling bonds. So the end of debt would mean the end of Treasury bonds.

But the U.S. has been issuing bonds for so long, and the bonds are seen as so safe, that much of the world has come to depend on them. The U.S. Treasury bond is a pillar of the global economy.